Real Estate Insight

Hawaii Investors Flocking to Orange County California Real Estate Market

The collapse of mainland real estate markets, particularly in California, has created tremendous investment opportunities for Hawaii investors. This opportunity couldn’t have come at a better time as millions of Americans scramble to salvage what’s left of their retirement portfolios following the brutal carnage that has taken place in the stock markets. Why? Consider this:

As of October 27, 2008 year to date, the Dow Jones Industrial Average has lost 37% of its value; the first 27 days in October accounted for an unprecented 20% of the Dow’s YTD losses. The NASDAQ is even worse, down 42% year to date. Investors have seen a staggering $8.3 trillion dollars evaporate in the stock market so far this year.

As if things weren’t bad enough, Hawaii investors trying to escape the bloodbath in the stock market by moving their investments into real estate are finding Hawaii’s real estate market a tough alternative. Real property values on Oahu so far have bucked the national trend of downward spiraling prices. This means high acquisition prices and low, or even negative, cash flows for investors. “On Oahu, investors are happy to just break even and avoid a negative monthly cash flow,” says Carlton Choy, a Broker In Charge at Premier Realty 2000.

Fortunately, it’s not all gloom and doom. Hawaii investors are turning to a safe and stable investment vehicle and are taking advantage of the downturn in California’s real estate market. Hawaii investors are finding big opportunities in Orange County, California.

There are hundreds of 2 & 3 bedroom homes in Orange County that are owned by banks that had to foreclose on the delinquent owners. These homes that sold for $300,000-$400,000 a few years ago, can be purchased today for as little as $100,000. That’s a 60%+ discount. Investors can buy these homes at 30 cents on the dollar. These homes generate anywhere from $1700-$2400 a month in rent. After all expenses, investors are experiencing positive cash flows of about $400/month per unit equating to a double digit return on investment. While double digit ROI’s and hefty positive cash flows are great, the real investment value is in its future value. It’s a reasonable assumption that these homes will return to the same value it sold for a few years ago. Where else can you invest your money today and reasonably assume that it will triple in value in the next ten years?

In contrast, owning or buying investment real estate on Oahu for the same amount of money will get you a small studio and a negative cash flow. On top of that, since Oahu has held its value, you’re paying “retail” for that property and future value is much more speculative. “I meet with investors several times a week looking to invest in Oahu real estate,” says Elliot Lau, a Broker In Charge at Premier Realty 2000. “When I show them the opportunity in OC, their initial response is that it’s too good to be true. That’s how great the opportunity is right now, and we have real numbers to support it.”

How can you tell that OC real estate is such a great opportunity right now? Follow the pros. Professional real estate investors lead the markets while amateur investors chase the markets. Right now, the pros are buying in OC. A leading indicator of real estate markets is the months of remaining inventory (MRI). It is used to gauge the type of market at any given time. 12 months ago, OC’s MRI was at 17 months; an extrememly strong buyer’s market. In less than 12 months, OC’s MRI is down to 7 months, considered to be a neutral market. Take one guess as to who’s buying all of that real estate? It is no longer a buyer’s market in Orange County. Premier Realty 2000, which has offices in Honolulu and Orange County, has helped many investors reposition their real estate holdings from Oahu to Orange County and triple their return on investment and cash flows. Investors like Paul Lam and Jared Nakamoto of Honolulu see this as a “no-brainer” and are buying as much as they can before this window of opportunity closes. “We expect that there’s about a year remaining for investors to invest in Orange County with such favorable conditions.” says Brian Laughlin, President and Principle Broker of Premier Realty 2000, heading the Orange County office. “The smart investors are seeing that Oahu real estate is not the place to be investing and that Orange County currently offers investors a rare combination of low acquisitition costs, great cash flows and tremendous appreciation potential in a safe and stable investment vehicle.”